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B for Broker

  • Unusually, I am not on the road – spending some time at home  - trying to get involved in my second son’s  journey to becoming a reader…  So the title of this Blog should be “Buh” for Broker or more accurately “Buh, Buh Buh” for Broker.  The old ABC’s are now phonetic.  English is a phonetic and spelling nightmare….check out the wiki


    Anyway (or “anyways” in my particular dialect), I  have had quite a few run ins with the idea of “Brokerage” recently…  in Finance (“clearing and settlement”), in Web 2.0 (“Auctions and Alternative Payments”), in the Cloud / Content (“Service Brokers”),  in NGN (“Service Enablement Platforms”) and of course in eCommerce (“B2B Integration” is a term one provider uses).  It was in a discussion with a broker in the NGN area that got me thinking. Here is a company that provides value by disintermediation … both the buyer and seller win by letting someone get between them.  The broker specializes in managing sales relationships with vendors on one side and purchasing relationships with buyers on the other. Neither is easy to deal with … and neither is terribly successful in dealing the other.   The broker acts as a facilitator – assisting both parties to come to an agreement (“contract at arm’s length”) and equally important helping both parties manage the agreement once it is in place (“comply with the contractual terms… SLA, Payments….).


    This is in stark contrast to a reseller which crafts an agreement with each party separately – and by owning the supplier contract (“partner relationship in Telco-ese ”) and the buyer contract (“Customer Relationship“) – clearly acts as a disintermediator.   I may be way off the mark… but I would say that reseller business models and brokerage model compete in services industries – especially where there is no geographic or political barrier between producers and consumers (ergo Web 2.0, the Cloud and increasingly Telco).  If I am a consumer I would rather deal directly with the producer and vice versa.  If someone can make it easy for the two of us to come to a commercial agreement and manage the agreement once it is in place… then the role of the reseller / aggregator (…) is unnecessary.

    I think the swing from a reseller based model to a broker based model is high on the agenda in the Cloud.  Security conscious enterprises do not like having an intermediary that a cloud reseller / cloud aggregator represents.  They want a direct agreement with the “Cloud Provider”. But at the same time they want contractual agility to avoid lock in – and a broker that makes it easy to enter into an agreement with any supplier would be ideal.  They would also like the broker to help ensure that the contract is being followed.  In the Cloud this is far from trivial – enterprises see the Cloud as an extension of their IT capabilities and expect that all the governance and compliance standards they apply to themselves (i.e. ITIL are provided by the Cloud vendor.  But in contrast to these standards – enterprises also want to pay differently for different levels of service …. They expect the broker to assist them in crafting the best monetary agreement for levelk of services provided.

    Brokers are interesting beasts – they themselves are “service providers” but the service they provide is “agreement facilitation”.  And the service itself is complex – there are many dimensions to crafting and then managing agreements (take a look at what eBay does for Auctions).  It is also is “multi-sided” – the broker is providing one service that provides value to both the buyer and the seller. Moreover, brokerage is often high volume (look at DTCC in the securities markets). To top it off, Brokers are businesses themselves -  they must get paid for their services – they themselves must get into agreements with buyers and/or sellers to act as their agreement manager. 

    This last point - though seemingly obvious – is an endless source of confusion.  Brokers provide a service that facilitates another service. They get into agreements to help others manage agreements.   The processes that make a successful broker are not the services they broker…. Confused you yet? 

    I will leave it at this: Brokers as businesses are becoming extraordinarily important in the service industries.  We need to understand what they do, why they exist and what makes one broker successful and another a failure.  I think “agreement facilitation” is nice way of looking at them… but what it takes to facilitate (both the crafting and the day to day management of the agreement) would take pages and pages…. So many thing come into facilitation (just look at custody). But I think I will look into it…  the patterns that are applied in different industries will surely have some cross pollination… meaning a source of opportunities for all.

    With that grandiose statement - I think I need to get back to "Ah" "Buh" "Cuh's".

    Douglas Zone
    About Douglas Zone Douglas Zone works as Special Projects at Cable & Wireless
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  • Goran Radic
    Goran Radic Your blog post is our bread & butter. All ideas used.
    9 September 2011